How the Weak Housing Market Hobbles The U.S. Economy

<a href="http://www.flickr.com/photos/albaum/1362641756/in/photostream/">ATIS547 on Flickr</a> As the economy continues to languish, one question that should get more attention is: how will the prolonged weakness of the housing market affect Americans? For one thing, there seems to be clear evidence that housing is holding back the economic recovery. As a result, more people are choosing to rent apartments, instead of buying houses in the suburbs, primarily for financial reasons. As the Charlotte Observer reported recently:

For decades, Americans have aspired to own homes, and everyone from bankers to government officials has worked to make the dream accessible. But around the country, particularly in places hit hardest by the real estate bust, that's changing.

Legions of homeowners remain underwater on their mortgages or unable to move because they can't sell their house. Plenty who want homes can't buy them because credit remains tight.

But the U.S. housing market is not weak for everyone. A story by the Associated Press today notes that there are fundamentally two housing markets in the U.S. these days: the one for the middle-class and a thriving one for the extremely well-off.

There is the other housing market, occupied by 1.5 percent of the U.S. population, according to Zillow.com. The one with outdoor kitchens and in-home spas; with his-and-her boudoirs and closets the size of starter houses. The one that is not local but global, with international buyers bidding in all cash. And where the gyrations of the stock market are cause for conversation, not cutting expenses.

In this land of luxury properties, the Great Recession seems over. Prices of $1 million-plus properties have risen 0.7 percent since February, according to Zillow. Prices of houses under $1 million have fallen more than 1.5 percent.

That housing market is where people like Mayor Michael Bloomberg live, as described in a New York Times article about the "mayor's baronial side" displayed in pictures of his luxury town house in Manhattan.

But the overall lackluster housing market also affects the economy in broader ways, including manufacturing. In a McClatchy article this week about the lack of a federal plan to solve the nation's housing problems, the reporter Kevin Hall quotes one expert, Chad Moutray, the chief economist for the National Association of Manufacturers, as saying:

"Housing market challenges continue to serve as a drag on manufacturing growth in a number of ways, both direct and indirect. First and foremost, housing starts are down from 2.1 million homes being built per year a few years ago to around 600,000 today."

"That means less demand for building materials for construction, and appliances and furniture for furnishings. But it also means that we have that many fewer people employed in the construction sector - all potential customers for manufactured goods."

President Obama also would be wise to focus on fixing the downturn in the housing market because it could be key for his reelection bid to stay in the White House. An Associated Press article looked at how a number of states critical to winning in 2012 have been particularly hard hit by the housing slump, including Florida, Nevada, Michigan and Ohio.